I'm guessing the absence of kittens or the fact that I don't play video games in them. But that's just a guess.. LOL Please help spread the word by liking and sharing. That's how UA-cam knows the content is good and will recommend it to more people.
Interesting. But I have a question, the more money we put into a deal the less our return will be right ? But that also means that we will pay less debt service each year which would mean more benefits and if something goes wrong more money to handle it. So do you think it's something to take into account ? More of your own money, less return but less risk of killing the company ?
Yes, all great points. I had an entire class in university which was based on how to figure out the optimum level of leverage in a business. The answer is... depends on your goals and risk tolerance. In tough times, the highly leveraged players get into trouble and the rock-solid companies with more equity are more durable. Business can be hard.
David, once you establish a WACC what do you recommend in expectations of that return to justify the purchase price? If the WACC is 36% are you saying the business should produce that in profit say on average over the next three years?
We can't be forward looking with small businesses. The seller typically is leaving and you're going to become the manager. You need to look at the recent performance. Also, you really need more than your WACC in order to have it be a really good deal. Once you have the keys, it's up to you to make sure you can hit the targets. Also, don't use SDE for these calculations as it includes the owner/manager's salary. Cheers
Fabulous explanation! Everyone shows you have to Incorporate but no one explains how to bring the money into the company. I do have a question. In order to issue the additional shares to Sarah for exchange of her $75,000, can the officers of the corporation handle that transaction or does it require a stock (share) broker to manage that? Or is a stock broker only needed if we are "selling" shares? Thanks so very much!
It's tough. Everyone looks for different returns based on who they are. People who 'overpay' for a business in one person's opinion usually have not in their own meaning they were comfortable with a lower rate of return, assuming they knew how to calculate it. When I look up comparable transactions when trying to value a business, I'm looking at the feedback of what other buyers were looking for. The required rates are aligned with perceived risks. People demand a higher rate of return from restaurants than they do from septic pumping businesses.
How the hell these videos don't have more views? Wished I saw these years, would be a happily retired 32 year old man now...
I'm guessing the absence of kittens or the fact that I don't play video games in them. But that's just a guess.. LOL Please help spread the word by liking and sharing. That's how UA-cam knows the content is good and will recommend it to more people.
Interesting. But I have a question, the more money we put into a deal the less our return will be right ? But that also means that we will pay less debt service each year which would mean more benefits and if something goes wrong more money to handle it. So do you think it's something to take into account ? More of your own money, less return but less risk of killing the company ?
Yes, all great points. I had an entire class in university which was based on how to figure out the optimum level of leverage in a business. The answer is... depends on your goals and risk tolerance. In tough times, the highly leveraged players get into trouble and the rock-solid companies with more equity are more durable. Business can be hard.
David, once you establish a WACC what do you recommend in expectations of that return to justify the purchase price? If the WACC is 36% are you saying the business should produce that in profit say on average over the next three years?
We can't be forward looking with small businesses. The seller typically is leaving and you're going to become the manager. You need to look at the recent performance.
Also, you really need more than your WACC in order to have it be a really good deal.
Once you have the keys, it's up to you to make sure you can hit the targets.
Also, don't use SDE for these calculations as it includes the owner/manager's salary.
Cheers
Fabulous explanation! Everyone shows you have to Incorporate but no one explains how to bring the money into the company. I do have a question. In order to issue the additional shares to Sarah for exchange of her $75,000, can the officers of the corporation handle that transaction or does it require a stock (share) broker to manage that? Or is a stock broker only needed if we are "selling" shares? Thanks so very much!
Thank you so much sir
You're welcome Yannick.
Thank you, love your video's and really appreciate the content as you explain things very well.
Thanks Rick. Be sure not to miss any new ones by being on my list. It's at www.DavidCBarnettList.com Cheers
Hi, Dave. This is a really great video, thank you. Where can I find a reference of reasonable rates of returns (is that the term?) by industry?
It's tough. Everyone looks for different returns based on who they are. People who 'overpay' for a business in one person's opinion usually have not in their own meaning they were comfortable with a lower rate of return, assuming they knew how to calculate it. When I look up comparable transactions when trying to value a business, I'm looking at the feedback of what other buyers were looking for. The required rates are aligned with perceived risks. People demand a higher rate of return from restaurants than they do from septic pumping businesses.
@@DavidCBarnett Is it fair to say that the rate of return will be a dominant factor in the decision of what kind of business am I buying?
If that is important to you. The decisions to buy or sell are motivated by personal reasons much of the time.